OPINION OF ADVOCATE GENERAL

SIR GORDON SLYNN

delivered on 8 November 1984

Mr President,

Members of the Court,

Mr Wendelboe, Mr Jensen and Mr Jeppesen were all employed by L. J. Music ApS, a company which made cassette recordings, until 28 February 1980. On that date they were made redundant with immediate effect, as were the majority of the company's employees, the company being in financial difficulty. On 4 March 1980 the company was declared insolvent by an interlocutory judgment of the local bankruptcy court. At the hearing on that day the director of the company, who had hitherto been one of its employees, proposed that the business, including its premises, stock and machines, be purchased by a company called SPKR No 534 ApS. The final agreement on the transfer was not concluded until 27 March, but the Court authorized SPKR No 534 ApS to use the insolvent business's premises and equipment as from 5 March. It was stipulated in the final agreement concluded on 27 March that the company's business was deemed to have been carried out on behalf of, and at the risk of, the transferee as from 4 March 1980.

On 6 March 1980, only six days after their dismissal, the three plaintiffs were engaged by the new company. The terms of their employment relationship provided that they would receive a higher salary than previously but that they would lose their rights to seniority. They then brought an action against the insolvent company, as preferential creditors, for damages for unlawful dismissal and arrears of holiday pay. That company admitted liability for holiday pay but contested liability for damages for unlawful dismissal, contending that, as there was a continuing employment relationship, the transferee company was solely liable, if anything was due to the claimants. In this respect it relied on Article 2 (1) of Law No 111 of 21 March 1979 on the Rights of Employees on the Transfer of Undertakings which was in force in Denmark. That law was implemented to give effect to Directive No 77/187 (on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses (Official Journal 1977 L 61, p. 26). The case came by way of appeal before the Vestre Landsret (Western Division of the High Court) which has referred a question on the interpretation of that Directive in accordance with Article 177 of the EEC Treaty.

The question asks whether the Directive ‘requires Member States to enact provisions in accordance with which the transferee of an undertaking becomes liable in respect of obligations concerning holiday pay and compensation to [former] employees who are not employed in the undertaking on the date of transfer’.

The Danish court assumes, or has decided, that the Directive applies to a transfer on bankruptcy or insolvency. The Government of the Netherlands, which has intervened, has contended that the Directive has no application to such a transfer. For reasons given in my Opinion in Case 135/83 H.B.M. Abels v Administrative Board of the Bedrijfsvereniging voor de Metaalindustrie en de Electronische Industrie, I agree with the submissions of the Dutch Government so that the question posed does not arise on the facts set out above as a matter of Community law. By Article 7 of the Directive, Member States are entitled to apply or introduce measures which are more favourable to employees than the provisions of the Directive itself. On that basis it is open to the Member States to grant to employees of such undertakings or businesses protection of the kind envisaged by the Directive. That, however, is a matter of national law and not of Community law.

Nevertheless, lest the Court decides that the Directive is applicable to a transfer on bankruptcy, and because the question is of general importance and has been fully argued it is necessary for me to deal with it.

Although the question does not refer to any specific provision of the Directive, it in fact arises under the first subparagraph of Article 3 (1). That provision stipulates that :

‘The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of the transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.’

The answer turns on whether the words ‘existing on the date of transfer’ relate to ‘rights and obligations’ or to ‘contract of employment or ... employment relationship’.

All the parties which have lodged observations with the Court or appeared at the hearing, namely the plaintiffs to the main case, the Danish, Dutch, French and the United Kingdom Governments and the Commission contend that the words ‘existing on the date of transfer’ qualify ‘contract of employment or ... employment relationship’ and not ‘rights and obligations’.

The English language version could be interpreted either way though it is more natural to construe the words ‘existing on the date of transfer’ as applying to the words immediately preceding them, even in the absence of a comma before ‘arising’ and after ‘Article 1 (1)’. I understand that the same applies to the Danish version.

In contrast, the French, Dutch, German and Italian versions make it clear beyond doubt that it is the contract of employment or employment relationship which must be in existence at the time of the transfer, and not the rights and obligations. Thus the French text reads: ‘Les droits et obligations qui résultent pour le cédant d'un contrat de travail ou d'une relation de travail existant à la date du transfert ... ’. Here, the words ‘existant à la date du transfert’ form part of the adjectival clause beginning ‘qui résultent ... ’ and can only refer to the contract of employment or employment relationship.

I understand that the same unambiguous effect is achieved in the Dutch and German versions by means of adjectival phrases. Thus the German version refers to ‘... einem zum Zeitpunkt des Übergangs im Sinne des Artikels 1 Absatz 1 bestehenden Arbeitsvertrag oder Arbeitsverhältnis’. Similarly the Dutch text speaks of ‘... de op het tijdstip van de overgang in de zin van artikel 1, lid 1, bestaande arbeidsovereenkomst of arbeidsverhouding.’.

Again, the Italian version reads: ‘I diritti e gli obblighi che risultano per il cedente da un contratto di lavoro o da un rapporto di lavoro esistente alla data del trasferimento’. The word ‘esistente’ is in the singular, thus agreeing with ‘un contratto di lavoro’ or ‘un rapporto di lavoro’; ‘esistente’ cannot agree with ‘diritti’ or ‘obblighi’, which are in the plural.

It follows on a literal reading of the text that the rights and obligations of persons who cease to be employed in the undertaking concerned at the time of the transfer are not transferred to the transferee by virtue of the Directive.

This literal reading is confirmed by other factors which have been referred to by the parties. The contrary result — that a transferee is liable to former employees who had left before the transfer — would present great difficulties. It might be difficult, if not impossible, for a potential transferee to ascertain with certainty what was the extent of his liability to former employees. Both the uncertainty and the amount involved could provide a real deterrent to purchasers of the business, and in the result the business might not be sold and a large number of the workforce lose their jobs. That is contrary to the principal object of the Directive, viz. to protect employees on a transfer.

To limit liability to employees at the time of transfer is also wholly consistent with the scheme of the Directive which is to transfer employees from one owner of the business to another on the same terms and conditions as existed prior to transfer, unless of course better terms are agreed with the transferee. Ex-employees retain rights against the transferor or pursuant to provisions adopted in accordance with Directive No 80/987 of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer.

Articles 3 (2) and 4 of the Directive under consideration equally seem to me to be clearly limited to existing employees at the time of the transfer. It is only the second subparagraph of Article 3 (3) which is concerned with persons no longer employed by the transferor at the time of transfer and that is in a limited context and by clear express language.

Whether or not a contract of employment or an employment relationship has terminated at the time of transfer is of course for national law to determine. However, the first sentence of Article 4 (1) provides that ‘the transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee’. That stipulation is subject to the second sentence and the second subparagraph of Article 4 (1).

Where employees are dismissed, with a view to and before, a transfer falling within the Directive and are reengaged immediately by the transeree thereafter, their dismissal must be regarded as contrary to Article 4 (1), subject to the exceptions specified in that paragraph. Whether the remedy for such unlawful dismissal consists in a court order declaring that dismissal to be a nullity or the award of damages or some other effective remedy is for the Member States to determine. In any event, the Member States are required to provide for a remedy which is effective and not merely symbolic: Cases 14/83 von Colson v Land Nordrhein-Westfalen and 79/83 Harz v Deutsche Tradax (judgments of 10 April 1984). If the remedy consists in treating the dismissal as a nullity, then it would follow that the rights and obligations of the employee concerned are transferred to the transferee.

In my opinion, the question referred is to be answered as follows :

‘Council Directive No 77/187 must be interpreted as meaning that it does not require Member States to provide that the rights and obligations of persons who have ceased to be employed in the undertaking concerned at the time of its transfer be transferred to the transferee. However, this is subject to compliance with, and to remedies provided for Member States in implementation of, Article 4 (1) of the Directive.’

The costs of the plaintiffs in the main case fall to be dealt with by the Danish court. No order should be made as to the costs of the Commission and the governments which have intervened.